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FT: Onwards and Upwards

Author: Ralph Atkins
December 30, 2008


The euro marks its 10th birthday on New Year's day at a perilous moment in global finance. But if popular culture is any guide to underlying economic reality, the currency of Europe's monetary union is in good shape. When a corrupt businessman pays his conspirators in Quantum of Solace, the latest James Bond film, he uses euros because, as one of the counterparties notes, "the dollar isn't what it once was. The cost of war."

Europe's single currency was born out of tension. Its eventual launch on January 1 1999 was spurred by the foreign exchange turmoil that hit the continent in the early years of that decade, when speculative flows almost broke up the previous "fixed but adaptable" exchange rate mechanism. The choice, says Barry Eichengreen, European economic history expert at the University of California, Berkeley, was either a return to floating currencies or to press ahead with monetary union: "It became pretty clear what needed to be done."

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